from congress a charter for the building of the bridge; and negotiations were pending to secure the capital, some two or three millions of dollars, with which to do the work. At that time the officers of the Pacific sought the officers of the Rock Island and the St. Paul, and prevented the building of the new bridge by means of this contract. If this contract had not been made, or it should not now be enforced, two or three millions, at least, of additional capital would be put into railroad and bridge construction; and such an expenditure of money places an additional burden upon the public. Every unnecessary mile of railroad track or bridge that is built adds to the cost of transportation, and surely the public is interested in seeing that that cost be as light as possible. A very serious economic and political question is whether this free country has not made a mistake in giving too large liberty of railroad construction. Take a single illustration: In the state of Colorado, between Pueblo and Denver, are three independent lines of road, with separate and distinct tracks and rights of way. To say nothing of the waste of lands and the injury to farms, the costs of these three lines of road, I am assured, is much more than double that of a single right of way with two tracks; and such single right of way would be adequate for all the business that the three roads have done, or are likely to do, for many years. The public which uses these roads bears the burden of this extra cost. Would not its interests have been promoted if by contract or law all these railroads could have been compelled to unite in a single line? So, here, if the public can prevent an increase of railroad property by the sum of two or three millions of dollars, it saves to itself the burden which that additional expense would cast upon it. Further, a new line running into Omaha cuts up and destroys unnecessarily a large amount of property. So in this, as in the case of Joy v. St. Louis, there is a public interest at stake which justifies the intervention of a court of equity. This is a case in which, and a contract of which, a court of equity may decree specific performance.

I pass to a consideration of the last question: Ought this contract to be specifically enforced? Of course, it is familiar law that courts of equity do not always decree specific performance of even unquestionably valid contracts. Insufficiency of consideration, want of fairness, or any special hardship resulting therefrom, is sufficient to prevent a decree of specific performance, and send the party to his action at law for damages. Pom. Spec. Perf. § 185; Fry, Spec. Perf. §§ 181, 193, 203. These defenses are interposed here: It is insisted that the rental for the use of the bridge, and the tracks between Council Bluffs and South Omaha, to-wit, $45,000, is grossly inadequate. Contemporaneous with this, another contract of similar import was executed with the Chicago, Milwaukee & St. Paul Railway Company, by which it also was to pay a like rental; so that the rentals secured by these two contracts, for the use of the same property, amount to $90,000. A volume of testimony was taken to show the value of the Pacific's property for which this rental was to be paid. Four or five engineers of ability, and real-estate men of experience, testified fully in respect to this matter. Their estimates

were very divergent, varying from three to seven millions. I shall not attempt in this opinion to review this testimony, or seek to determine which of these estimates is most reliable. Obviously, the estimate of Mr. Smead, the chief engineer of the Pacific, is too high, in that it includes property not covered by the lease. Probably the real value lies somewhere between the respective figures, and nearer three than seven millions. If the value be seven millions, $90,000 rental is only about 11 per cent.; and, if this were the rental for the full and exclusive possession, it would obviously be too low, but there is only a partial possession and a partial use. This rent is so much in excess of that which the Pacific realizes from its own use of the property. Not only that, by section 7 of article 3 of the contract, the Pacific reserves to itself the right to let other companies into the like possession and use of this property, without sharing with these lessees the rentals thus obtained. On the other hand, if the value of the property is only $3,000,000, the rental is 3 per cent., and that for only this partial use. But, beyond this Omaha property, the contract provides for the use by each party of portions of the other's tracks; and the benefits which flow to the Pacific, from its acquisition of parts of the Rock Island's tracks elsewhere in the system, are worthy of notice in determining the sufficiency of the consideration. There are other benefits, also, of a pecuniary nature, the amount of which may not perhaps be easily estimated, which will inure to the Pacific from the pouring of this volume of business of the Rock Island and St. Paul roads over its tracks, rather than over an independent and separate line.

But I place more reliance upon this further matter: As heretofore stated, the contract was sought by the Pacific. The then executive officers of that company, distinguished and competent railroad gentlemen, of long experience in connection with the property, in their consultations as to the price to be demanded, and before any conference with the officers of the Rock Island and the St. Paul, fixed $50,000 as the sum to be demanded, and $45,000 as that to be accepted. Now, when gentlemen so competent to determine such a matter, so interested in securing the best possible terms for the Pacific, without suggestion from the other side, named $50,000 as the rental to be asked, I think it would be strange for a court to hold that a rental of $45,000 was grossly inadequate. This is not a case in which the defendant has been led into a contract, or its terms fixed by inexperienced or incompetent men; but it sought the contract, named its price, and received nine-tenths of the consideration which it proposed to take.

It is further objected that the Pacific does a large local business between Council Bluffs and South Omaha, from which it makes much profit; and that under this contract the Rock Island may itself put on local trains, and, by reducing the fares, practically cut off this source of revenue from the Pacific; whereas, if it built a separate bridge and a separate line, the amount of the cost would be so great that it would be compelled to keep up rates. My observation has taught me that the cutting of rates generally springs from quarrels between competing roads, and is little, if at all, affected by the cost of the property; and if the

Rock Island and St. Paul were now forced to build a new bridge, and establish an independent line, there would be just as much likelihood of the cutting of rates. Aside from the existence of any quarrel, selfinterest will prompt the Rock Island and St. Paul to maintain any rate which is just and reasonable. More than that, the Pacific has no right to expect. But another safeguard is this: Every contract implies good faith in the contracting parties, no matter what may be the mere language of the instrument; and if, after having been let into possession, the Rock Island should in any way abuse the privileges given by this lease, the courts are open to furnish protection, even if, to secure it, it be necessary to cancel the lease.

But there are considerations on the other side which are worthy of mention, and which make specific performance right. While no estoppel runs against an ultra vires contract, yet it is fair always to consider the situation of the plaintiff if specific performance be denied. The Rock Island has constructed a line from Lincoln to Omaha, and has expended a million and a half of money in reliance upon this contract. It and the St. Paul abandoned their scheme of building a new bridge, and creating a new and independent line into and through Omaha. If now specific performance is refused, what becomes of that investment? Must it lie idle until a year or so have passed, in which a new bridge and a line into and through Omaha can be completed? and who can tell whether, in the changed financial condition, these companies could secure the money with which to build the bridge and construct the line? Suppose the Rock Island was refused specific performance, and relegated to an action for damages, of what avail would such action be? Long would be the delay in prosecuting it to judgment. What would be the measure of damages? And, if a large sum were recovered, is there any certainty, in view of the heavily mortgaged condition of the Pacific, that the judgment could be collected? I think I need continue this discussion no further. I have given this case long and careful consideration. Summing the whole matter up: The defendant sought this contract. Its executive officers were gentlemen of long experience with the property, and distinguished ability as railroad officials. There was no concealment or deception, no fraud or unfairness, on the part of the officers of the plaintiff. There was no opportunity for any; the officers of the defendant company fully understood the situation. To this contract, not only the executive officers, but also the great body of the stockholders, of the Pacific gave their approval. The rental finally agreed upon was within a small fraction of that which the defendant had determined to ask. Relying on this contract, the plaintiff abandoned plans and negotiations for an independent line, and has expended over a million of dollars in building a road from Omaha to Lincoln. It will be grievously hurt if performance is not now decreed. Performance will not disable the Pacific from discharging all its duties and performing all its functions. If the time shall ever come in which performance shall tend to have that effect, the government, at least,-the party having the right to complain,-can interfere and put an end to the plaintiff's possession

and use. The contract is for the interest of the government as second mortgagee, as coining surplus use of tracks into money. It is for the interest of the public in preventing the destruction of valuable property, and the cutting up of a large city by new tracks and right of way, and in avoiding an unnecessary investment of large sums of money in railroad building, and thus increasing the railroad burden. It is to the higher interest of all, corporations and public alike, that it be understood that there is a binding force in all contract obligations; that no change of interest or change of management can disturb their sanctity or break their force; but that the law which gives to corporations their rights, their capacities for large accumulations, and all their faculties, is potent to hold them to all their obligations, and so make right and justice the measure of all corporate as well as individual action. The decree will go for the plaintiff as prayed for. The same considerations require that a like decree be entered in the case of the Chicago, Milwaukee & St. Paul Railway Company against these defendants.

BOUND. SOUTH CAROLINA RY. Co. et al., (LACKAWANNA IRON & COAL Co., Intervenor.)

(Circuit Court, D. South Carolina. July 20, 1891.)

1. RAILROAD MORTGAGE-EQUITABLE RIGHTS OF MATERIAL-MEN-RECEIVERS-APPLICATION OF EARNINGS. Where a railroad company whose property is covered by two mortgages buys on credit rails which are necessary for the purpose of keeping its road going, and the road is afterwards placed in the hands of a receiver on application of the second mortgagees, the seller of rails has an equitable right, as against the second mortgagees, to have the earnings of the road in the hands of the receiver applied first to the payment of his claim.

2. SAME.

But he has no such right as against the first mortgagees, even though they have filed cross-bills in the suit, since they are not the ones who applied to the court of equity, and may therefore stand on their legal rights.

SIMONTON, J. In April, 1888, the South Carolina Railway Company purchased from the Lackawanna Iron & Coal Company 1,500 tons of steel rails. These rails were absolutely necessary for the purposes of the company, and without them the Camden branch-an important part of its road-could not have been kept up. Three notes were given for the rails, aggregating $50,255.93, maturing in November, 1888. When the purchase was made the president of the railway company promised to pay them out of the earnings of the road, and selected the period of maturity with that end in view. When the notes fell due the company could not pay them, and they were extended for 90 days more.

The

period thus fixed was specially selected because the earnings at that time exceeded the earnings of any other part of the year. One of the notes was paid in September, 1889; the others are still unpaid, aggregating of principal the sum of $35,736.78, interest from March 10, 1889, on $17,784.59, and March 12, 1889, $17,952.19. The South Carolina Railway Company made default of the interest on its second mortgage bonds on April 1, 1888. It made default of the interest on its first mortgage bonds on April 1, 1889. It went into the hands of the receiver October 7, 1889, in proceedings instituted by a second mortgage bondholder in behalf of himself and others of this class for the foreclosure of the second mortgage. During the entire period from the making to the final dishonor of these notes, the gross earnings of the company exceeded the operating expenses. As we have seen, no interest was paid on second mortgage bonds after the giving of these notes. But it appears that after April, 1888, and while these notes were running to maturity, certain bills payable of the railway company were paid out of the earnings, and that these bills were made in order to raise funds which had been applied, among other things, to the payment of interest on second mortgage bonds. The Lackawanna Company now intervenes, and prays that its claim be paid out of the earnings of the road. in the hands of the receiver. The supreme court has established that a railroad mortgage, so long as the road is kept a going concern, is a peculiar piece of property. The holder of a bond secured by such a mortgage takes it with notice that the earnings of the railroad, notwithstanding that they may have been specially pledged for his debt, must first be applied to the current expenses, labor, supplies, equipment, and such permanent improvements as are absolutely necessary before they can be used for the payment of his interest. And if perchance he be paid, leav ing these or any of these unpaid, this would be the diversion of the fund, and a person holding any such exceptional claim has an equity, under certain circumstances, to be reimbursed, by having such diversion corrected out of the income in the hands of the company; and, if in the mean time a receiver has been appointed, out of the earnings in the hands of the receiver. This is an equity founded upon the doctrine that the officers of a railway company are trustees, or, perhaps, we should say the recipients and holders, of a trust fund, applicable first to claims of this character, and after them to the interest on the mortgage debt. The origin and reason for this equity are found in the fact that a going railroad is of public concern, and must be kept up. Those who contribute to keep it up and so subserve the public weal are rewarded. This equity is enforced whenever suit is brought by the mortgagee to enforce his mortgage, and is held superior to the legal lien of the mortgage. This doctrine was first distinctly set out in Fosdick v. Schall, 99 U. S. 235, and is sustained by a current of authority. Miltenberger v. Railway Co., 106 U. S. 286, 1 Sup. Ct. Rep. 140; Trust Co. v. Souther, 107 U. S. 591, 2 Sup. Ct. Rep. 295; Burnham v. Bowen, 111 U. S. 776, 4 Sup. Ct. Rep. 675. It seems to have been shaken in Kneeland v. Trust Co., 136 U. S. 87, 10 Sup. Ct. Rep. 950; but in Kneeland v. Foundry, etc., Works, 11